What’s up everyone? Today, I want to answer this common question when it comes to fund documents: What are Blue Sky laws?
What Are They?
The blue sky laws protect investors against securities fraud.
These state-level regulations are designed to stop investors from falling victim to fraud by unethical companies that sell securities.
This is why most fund managers will be required to make a blue sky filing.
The laws vary from state to state, but they typically require companies to disclose the type of securities they’re selling, details of their financial situation, and the backgrounds of managers and directors.
The term “blue sky law” dates back to the early 1900s when a Kansas Supreme Court justice stated that he didn’t want fraudsters selling securities with nothing more to back them up than the “blue sky.”
Investopedia states that in the years leading up to the 1929 stock market crash…
“Many companies issued stock, promoted real estate and other investment deals while making lofty, unsubstantiated promises of greater profits to come.”
The Securities and Exchange Commission (SEC) was not formed until after the crash in 1934.
Since then, the Uniform Securities Act of 1956 (nicknamed the “blue sky law”) and the National Securities Markets Improvement Act of 1996 have sought to stop all fraudulent sales of unreasonable securities.
Today, all 50 states have their own set of blue sky laws.
How to Make a Blue Sky Filing
Like I said, the requirements for making your blue sky filings will differ from state to state, but here are the general guidelines…
- Register with the state: the fund manager must first register with the state’s regulatory agency
- Prepare disclosure documents: this provides information on the securities being offered, the fund’s investment strategy and history, and other relevant info
- Submit the filing: do this on time*
- Wait for approval: the length of the reviewing process will vary depending on the state, amount of additional information they request, and the complexity of the fund
*AngelList states that the state blue sky filing can be done either before the fund closes or 15 day before the closing period. Failure to do so can result in financial penalties from the SEC.
Questions? Visit Fund Launch to speak with a fund coach or check out these answered questions from the HedgeFundLawBlog…
Does the fund or the management company pay the blue sky filing fees?
Does a manager have to pay the blue sky filing fee to each state on a yearly basis?
Hopefully, you learned a bit about blue sky laws!
Check out any of the websites mentioned above for more info.
Also, go to Fund Launch if you want help starting or scaling your own fund!
That’s it for today!
Want to get direct guidance for your fund? Schedule a time with my Fund Advisors!
DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the author